Alexis Jones, a Sierra Funds bond trader is considering the following swap deal. - On January 1, 2001, TTT Corporate 7.0s of 2006 traded at a bid side price of 120 basis points over the 5- year U.S. Treasury yield of 6.20% at a time when LIBOR was 5.90%. - On the same day, 5-year LIBOR-based swap spreads were at 100 basis points (to the U.S. Treasury). - Assume that a bond manager bought the TTT issue and simultaneously enters into this 5-year swap.
In the trade Jones is considering, the fixed rate corporate bond’s spread over LIBOR would be ?
^ thats the answer.
However, the question says OVER LIBOR ? what does it mean ? should be over swap fixed rate?
another question, what is the float rate ?
confused because i see examples say: loan rate is LIBOR + xxx bps. (sth like LIBOR + 200 bps)
120 bp over Treasury (6.2%)–>7.4%
Float: LIBOR (5.9%) (because it says LIBOR based swap)
Fixed: 100bp over Treasury (6.2%) —>7.2%
The payments involving treasury must offset.
Receives 7.4% (from bond) and LIBOR (from swap)
Pays 7.2% to swap
ahhh, i did not see libor-base…
so libor 5 years rate is not used, but it traps me :))